The following article was originally posted on the Forum for the Future website here and is the third in a mini-series of guest blog posts by industry experts focused around recycling and the circular economy. You can also read the first in the series by John Gardner, Vice President and Chief Sustainability Officer at Novelis here.
The growth model favored by economies and indeed most companies for the last 250 years – based on the availability of plentiful and inexpensive natural resources – is living on borrowed time and, so are companies that rely on it.
Since the industrial revolution, waste has constantly grown. This is because our economies have used a “take-make-consume and dispose” pattern of growth – a linear model, which assumes that resources are abundant, available and cheap to dispose of.
A circular economy takes into consideration how valuable materials are leaking from our economies. In a world where demand and competition for finite and sometimes scarce resources will continue to increase, and pressure on resources is causing greater environmental degradation and fragility, we can benefit economically and environmentally from making better use of those resources.
For businesses and their top executives responsible for setting the direction of their firms, this leads to one inescapable conclusion: continued dependence on scarce natural resources for growth exposes a company’s tangible and intangible value to serious risks. This is due to:
- Revenue reduction: Supply uncertainties and changing consumer preferences could prevent companies from generating revenues and maintaining market share. For instance, companies that depend heavily on scarce resources might have to shut down production at times and be unable to deliver demanded volumes.
- Cost increase: Companies whose growth is tightly tied to scarce resources will find themselves at a competitive disadvantage due to rising and volatile prices that reduce their ability to forecast and compete with less resource intensive competitors.
- Intangible assets: A company’s environmental footprint and resource dependence could erode brand value as consumers shun companies with unsustainable business practice. And, as planetary bottlenecks and resource scarcity become more critical, policymakers will likely favor companies that can prove they have positive societal impact and can operate without depleting the country’s natural resources.
Decoupling growth from use of scare resources
In a circular economy, growth is decoupled from the use of scarce resources through disruptive technology and business models based on longevity, renewability, reuse, repair, upgrade, refurbishment, capacity sharing and dematerialization.
Companies should no longer focus mainly on driving more volume and squeezing out costs through greater efficiency in supply chains, factories and organizations. Rather they should concentrate on rethinking products and services from the bottom up to future-proof their operations to prepare for inevitable resource constraints.
Procurement is today characterized by bringing value to the company through the traditional transactional approach. In the future I believe procurement professionals will have an important role in bringing in new innovations from the suppliers. This demands a collaborative and innovative relationship
Supply chains are getting more complex every day in terms of the number of involved partners and the quality and degree of interdependency between them. One of the predictions in relation to the integration of circular procurement is that complexity will increase.
We also have to remember that businesses have to operate in a globalized world where the volatility of markets, the speed of technological progress and the pace of change, in the economic and business environments, will continue to rise rapidly. As a result, product life cycles are getting shorter and market demands become more and more unpredictable.
Collaboration with all types of partners, and their willingness and ability to share their knowledge, will be crucial and key to a successful development and integration of circular thinking.
Great opportunity with high potential for procurement
Missing an important trend and the threat of being commoditized have become substantial risks of every company. This provides a great opportunity for procurement to take the lead on circular innovation. Procurement has to ensure that supply partnerships emerge from a pure cost orientation towards a strong focus on joint collaboration and innovations.
In many companies it is typically a challenge to include suppliers in the front end of the innovation process. Procurement teams are often disconnected from the functions they serve and the markets they engage with. They are not fluent in the nuances of the business and hence lack experience and authority. Also, in many companies, procurement are used to “innovation” being an internal capability and are hence not used to working together with external partners on delivering innovation.
The key questions
How can procurement advance the collaboration with suppliers on circular thinking in an effective way? How can procurement ensure that the suppliers are willing and able to share their knowledge?
For procurement to be successful in these innovation-oriented supply partnerships I believe that it requires new models for relationship building and collaboration. It also requires procurement to integrate across the whole organization.
There is a great opportunity for procurement to take on the leading position within a company, transforming them from linear economies to circular ones; but for this to work demands that procurement professionals are able to think in “circles”.